how many of the current inhabitants of guantanamo were arrested in countries other than afghanistan and pakistan. with the help of pakistan. so i think that sometimes we just go from one end of greek allies, great friends which is what was your longtime, in the previous administration, two gosh, these guys are no good, et cetera. this is not the way to do business between two allies and partners. and i think we will not interpret the remarks as a letter. we understand them to be a reflection of american statement of policy, and the americans have the right to defend their homeland by ensuring that terrorists are plotting against the american homeland are dealt with. but as far as the other concern, we are very confident of our sovereignty. we would like to protect our

sovereignty. and sovereignty requires that when operations take place in pakistan they should take place without knowledge and our participation. >> a quick follow. does that mean if there's a second rate, that your forces would fire on the rich? >> when i became ambassador to the united states, i went and saw very good colleague of mine, another professor of international, and i said i've been ambassador before but that was a very nice lady country called sri lanka. what is the one thing you think i should bear in mind while serving as ambassador, and he said just women one thing. i said what? he said never answer a question that begins with if. [laughter] >> i don't have a question to you. i the question through you.

to act as a barometer from what you're hearing from your citizens back in pakistan to quit the presidential election coming up next year, and i can't believe that nobody in your country is paying any attention at all to a. i'm thinking about the republicans, some of them are saying we're spending way too much and stuff overseas. we shouldn't take that money there and spend it here and help this country to this recession. i'm curious as to what you're hearing through your country about president obama's performance, should he be reelected? are you hearing any concerns about republicans? what are you hearing about next year's presidential election? >> i'm sure i'm hearing quite a lot, but again, ambassadors are never supposed to comment on domestic politics of the host country. not all american ambassadors follow the principle in other countries. [laughter] but all pakistan ambassador to do. as far as political rhetoric is

concerned, let's be real. this is not the first time it has happened. i thought american political history, isolationism has been a significant sort of intellectual strand, and sometimes not even intellectual, just a political strand in america's history. there are people think we are safe, we are okay. in this era of globalization i think americans have to be very careful in addressing that. the american government spends far more on its military preparedness than it does on diplomacy. diplomacy is supposed to be, foreign aid and everything. diplomacy is the means to avoid war. so, there is something wrong when you spend more on preparing for war, and very little on actually avoiding war. and i think that there is a real

disconnect in this country where people who say we are advocates of a strong defense, but not advocates of a strong diplomacy. and all tools of diplomacy. so, without getting into the american domestic political arguments, if you have friends in either the republican or the democratic party, and they include people with this kind of you that, you know, oh, god, we're spending too much overseas, really you would spend much less overseas if instead of having to deal with people hating you and opposing you, you actually had less people hating you and opposing you. and you could be the world's leader without, without having to spend that much money because people look toward you for your ideals. i often tell my own personal story. i was a young boy in pakistan growing up in the city of

karachi. i used to go -- i was born in a family that couldn't afford air-conditioning. it was rather expensive in those days. i was eventually good student at school. scholarship came. and i used to go to the american library because it was air-conditioned and it had lots of books. and in some it was a great for me. i still have not met an american 17 year old who has read the federalist papers. i had a pakistani 17 year. and many years later when i became a journalist, i was at the american embassy for thanksgiving dinner, and after dinner the ambassador at the time invited everybody to play again that had just been introduced called trivial pursuit. and guess who beat the american embassy diplomats at the game of trivial pursuit on american history? after which the mr. ambassador asked me how long it's been in the united states? and i said i have never visited the u.s. to all my knowledge is essentially acknowledge.

and, of course, he decided to rectify that by getting an invitation to come here and international program which i think was the best use of american taxpayer money ever. because you ended up having somebody know your history, appreciate your ideals without being born in your country. and without ever adopting her citizenship over a blank for a. somebody who is from another country, loves his own country but looks at your country with admiration. you could have millions more like that, at much less cost. i assure you that my international visit, a six-week program, and always been on the american library in karachi was much less than the price of the drones that you're having to use to take out terrorists. so there are two ways of looking at it. one is, spend more on defending yourselves. or spin a little bit also on

avoiding, antagonizing people and making them into enemies. [applause] >> pakistan also spent a great deal of its money in relation to how much it spends on its civilian infrastructure. so i'm wondering, yeah, as a pakistani american about the in frequent contact with come in pakistan, i get the feeling they feel the leadership has failed them a thing to its civilian infrastructure. i was one if you could address that. >> pakistan has been used by the military directly for more than half of its existence as an independent country. so we have never really had an

open debate on what our priority, national priorities ought to be. national security is always important, protecting sovereignty is always important. ensuring that your country is safe from external enemies is always important. but at the same time it's also important to have an educated population, strong infrastructure, investment in health care. and having the wherewithal from being part of the 21st century as a modern country. the elected leadership in the last three years thousand -- has introduced some very new things. we are not there yet people we are not there yet because we're still coming out up almost four decades of sort of domination, four and a half decades of domination, buy, politicize military which is different from military. we all love our military. we care about because these are

people who fight for us. but at the same time we don't like them running our government. we don't like them taking over -- but since 1958 we have spent most of our life under the shadow of a politically interventionist military. and so we're coming out of it now. our military leadership has made clear it has no intention of going back to the people allow us to have a more open to become more robust debate. so you're generational have an opportunity to actually debate how much do we really need to spend on defense, who are our enemies, what is our defense strategy, or how can we optimize our defense without allocating all our resources on supporting a military? how do we avoid the fate of the soviet union, which had, which try to match the united states weapons system, and ended up

having an internal collapse? and those are things that are melted leadership under its stability there should are both aware of people forget in 2008 we had a transition. we transitioned from being under a coup making general taking part in a military coup to an elected government. look, the elected government has relatively less political experience, being in prison are being in exile is not experienced for running government. and there is restlessness. there's restlessness because the young population, especially, i am on twitter, facebook. the facebook, twitter to just kind going on and on and talk about change tomorrow, change doesn't come tomorrow. when you're 54 you will realize that you had to go through what you went through from 24 to 54 to get there. so you can learn faster, but change won't happen tomorrow. and so, understand the dynamics

of pakistan, history and andrew changes is important before pakistan makes the changes. it's only a matter of time the for we find the equilibrium between investing in our children's education, our population health care, our infrastructure needs, our investment in those things that will enable us to become a vibrant economy. and at the same time a healthy defense. but for that to begin have to win the war against terrorists first. >> can i interject a question and there? over these last three years of civilian government, almost three years, and as you say, there have been, there's been some problems with indie. pakistan has increased its nuclear weapons capability and research are perhaps more quickly than any other country in the world. why does the pakistani government see that as necessary? >> pakistan's nuclear policy as you know has always been relatively simple.

pakistan does not -- pakistan is part of global efforts on nonproliferation the the prime minister presented president obama's nuclear security and safety summit. we're willing to be part of a global effort to do away with nuclear weapons. however, what we are not prepared for is having a much larger neighbor than ourselves having nuclear weapons and does not have a nuclear deterrent. that's been our policy. and so, our nuclear deterrent is primarily a regional specific nuclear deterrent. and even there, we have never foreclosed the possibility of future conversations, negotiations and dialogue which can find a solution and a way forward. we generally tend to be like all nations. we tend to be secretive about our nuclear weapons and our actual, et cetera. and again, once put it in the process of dialogue and

normalization with all our neighbors, we feel more secure, i think that is going to be less and less significant than it seems right now. >> thank you mr. ambassador. i am day become a member of the rotary club of washington, d.c. and the rotary movement worldwide has been trying to eradicate since 1985. and last month i was at our annual convention which happened to be in america. and bill gates spoke to us and he gave all kinds of data about how we are closing in the eradication of older. and he pointed out there are four countries, nigeria, india, pakistan and afghanistan, and the last year for which there is data, of course 2010. and he says it has decreased in nigeria, india and afghanistan,

and afghanistan it. they have -- [inaudible] but it increased from 60 some the 144 from 2005-2010. he didn't give reasons our hypotheses why this might be so. let it seems to indicate that there are parts of the country that just are too restless or not under the control of the vaccinations. do you have some insight on that? >> those are absolute numbers. 167, again, besides the population has to be borne in mind. of the four countries you mention, the fastest population growth has been pakistan. and so, therefore, we have more infants that require the polio vaccination. we have a national program for polio eradication. when prime minister took over in 1993, for the second term, it was one of our first priorities

and we got it down instantly. right now in the last or years or so, the numbers have spiked a little bit. and they have primarily been in one area. and that has had to do with two things. one, is certain clerics making the provision that these vaccines are some kind of instruments of the devil, et cetera, et cetera. and so some are refusing to let them have it, or you can't do anything about that. the other factors of course is security, but we're trying to reach that as well. we do have a national eradication program which is supported fully by mr. gates and his foundation. he saw our president here in washington, d.c. a few months ago. and our president came for ambassador richard holbrooke's memorial service. and we sat together. and we may not be able to get to see it all. anytime soon because if there is

still that kid whose parents refuse to get him back senate, there's nothing anybody can do about it is that kid comes across the circumstances that gave rise to palu. but we do hope that we be able to bring the numbers back down to the relatively nominal numbers that we used to have in the mid '90s. spent i think we're just a few more minutes. so let me take, i think there are three questions. >> mr. ambassador, and your opening remarks i believe you said that half of the population of pakistan is under 18. >> it's a very young population. >> they're young. there's been a fair amount of coverage in pakistan where the

koran is pretty much exclusively taught, and there is a real concern that radicalism is being sponsored in the teachings there. my question is, how widespread among the, i guess of pakistan, who is supporting them, and how concerned is the government about that? and my second question if i may, in her opening remarks, i believe you said that given your pajama and muslim country, that there was some sympathies by the population with some of the aims of these extremist groups, i can't go to exactly, but i just wonder if you could elaborate on

that. [inaudible] >> and we'll answer them all together, and worry. [laughter] >> i will make you spit and if i am only to answer one, i will answer yours, don't worry. [laughter] >> i was just going to ask, a generic question about the isi, that's pakistani intelligence service. are you 100% convinced they are trustworthy? and they have no link to insurgent? i thought i would ask an easy question. >> i'm from the women's foreign policy grew. you have spoken at it about eight am i quite has to do about that. do you think there is such thing

as too much aid? if you think they can harm the relationship between two countries? and could just become that in regards to the pakistan-u.s. relations? >> "the new york times" doesn't get mad at me, i should answer your question first. the isi is as trustworthy as any intelligence service in the world. [laughter] [applause] >> as far as the cooperation between the isi and the cia is concerned, it's an ongoing cooperation. there are days when one of them is upset with the other. there are days when both of them are upset with the other. and there are days when they are both happy with one another. that is the nature of intelligence. and they do not need to say something new. i think that secretary gates, as he was leaving office, very wisely put it, there are certain things that happen in the real world, especially in the world

of intelligence, which i think when we tried to approach it with a very simple black and white sort of approach, they fall into the category -- but it's in pakistan's interest to eliminate the terrorist groups. and pakistan's intelligence service will be part of all those efforts. the manner of doing it may not exactly conform to the expectations of some of my international partners. and what comes first, what can second, et cetera, there'll always be disagreements. that's the nature. on aid i would say that a it's one of those things when people have different opinions. the purpose of aid should always be to enable somebody to get on their own feet and to be able to do things on their own. if you create a dependence which pakistan does not see, does not

want and does not wish for itself, then you are not being careful. at the same time i would say that just as there can be too much aid, there can also be too much debate about eight. -- about aid. what was said about pornography, that he doesn't know what the definition is, but he knew it when he saw a. similarly when aid works you can see it. and i think the real problem right now is that in this city in particular, and an entire profession and occupation has evolved which is debating aid, figuring out aid, thinking of new ways of providing aid, critiquing aid, criticizing aid, and they spend much more money by producing reports about aid than actually manifesting aid

and letting it happen. and anything that requires 97 studies about how to do it is definitely something that needs to either be revisited or be done in a different manner. you don't need 20 studies on how to build a school in afghanistan. you just need to build a school in afghanistan. so too much aid, i'm sure there is such a concept. but very frankly you're young, don't join the ranks of the cynics in washington, d.c. who think you know what? i'm going to make a career out of debating aid rather than doing it. whatever needs to be done as far as pakistan is concerned and i think every else in the world am a nobody wants to be a recipient of aid forever. as long as assistance, germans received it after the second world war and then look at where germany is today. japan do. other countries from south korea picks other countries that

receive assistance, i don't economic momentum, and they take off. and then there are countries that are in a cycle of receiving aid and not getting on their feet. that is a distinction that needs to be made. aid that enables people to get on their feet and move on is good. and aid is different and now the final question that came from this and. and that related to madrassas. first of all, the number of transit students in pakistan and that's what terms may be several hundred thousand, but in percentage terms it's less than 2% of all kids who attend any kind of school. some of them are radical. in fact, with any audience somebody come since i don't have the permission i'm not going to identify them because it might embarrass them, who is already working on the radicalizing them and is very successful. there are programs of that nature going on. the icr deed which is an

organization here, international center for diplomacy, and opposed to have an ongoing program. there are pakistani programs, too. there will always be conservative groups are religiously conservative groups in every society that will have a slightly different worldview than you and me on religion. what we should be concerned about is those who turn into violence and terrorism. that should be our concern. we don't mind people who want to have a more conservative interpretation of religion in their schools. who funds them? they receive funding from people who sympathize with the goals and objectives. from all over the world, particularly the country region. as far as the sympathy point i was making was, that in the nation the size of pakistan, 180 million, even if 1% of the people have a sympathy with ideas, not necessary of al qaeda, but other groups that actually think that their

objective is creating, opposing modernity, throwing out western imperialism as they see it come rewarding back to more order, those people will always be in a society like ours. and for that matter in the greater middle east it as i keep reminding everybody, our region is not going to be just another county in kansas anytime soon. >> i think we run out of time and efforts of a want to thank all of you for coming and for all your good questions. but i most of all want to thank our speaker, ambassador haqqani, for your candor and generosity of time that you have given us all, for teaching us a lot about how pakistan works, and some pakistani history. and even some american history. so i thank you very much. [applause]

>> translator[inaudibleconversa] [inaudible conversations] >> the senate was good to take a weeklong break for the july 4 holiday but majority leader reid decided to senators return today to continue negotiations on the debt and deficit.

>> mission control, houston. start program. >> roger, discovery step nasa is on schedule for the foundation of the space shuttle program this friday with the launch of sts 135 atlantis to look back at the shuttle program starting with the launch of sts one columbia, 30 years ago and explore what's ahead for nasa on line at the c-span the library, search, watch, clip and shared anytime. >> it used to be we didn't release transcripts of argument. now we release them within a half-hour. it used to be the audio recordings of courts arguments were released the end of the term. now they are released at the end of every week. so we are moving in a particular

direction. cameras present challenges that all these other areas don't. >> right now on c-span and watch chief justice john roberts latest comments on cameras in the courtroom. also american history tv and booktv from our local content vehicles online at youtube.com/c-span. >> french president nicolas sarkozy is proposing a 20 billion euro investment plan to promote research, innovation, science and technology in france. the french president it was up for reelection next year also announced a deal with french banks to give greece more timeb to pay off its debts. his comments now from paris. it's about an hour and 20 minutes. [speaking in french] >> translator: let me thank those who bothered to get up. thank you. and for those who didn't bother, well, that's all right.

mr. prime minister, ladies and gentlemen, ministers, on june 22, 2009 in front of the congress in versailles, i was announcing that france was about to launch a large borrowing in order to finance investments for the future which it needed in order to guarantee future growth. we were facing the worst economic crisis the world had ever known for a century, and the response to this crisis was for all the governments of the world but it was not enough to prevent the collapse of our banks, collapse of our economies. it was even more urgent for the future and to give us the means to hold our rank in the world is going to come out of this crisis. and i'm wondering if all of us really appreciated the gravity of the crisis that the world had

just gone through. i am very impressed to see the capacity for underestimating the strength of the crisis which the world went through. and i know that yesterday's news is old news, but this crisis was of a gravity which had no precedent. and a crisis told us that we should pursue reform and invest. the figures are eloquent. for the last 30 years france has never had a balanced budget. the deficit and the debt got worse and worse here and at the same time, the level of administrations investment had never stopped declining. the level of public investment went from 12.5% of publics

expenditures in 1974 to 7.5% in the year 2007. the truth is there. we have to face it. our deficit first and foremost were used to finance current expenditures at the expense of investment. that is, at the expense of the future. for the last 30 years we have piled up deficits in the share of investment went from 12.5% to 7.5%. this figure to me since a good illustration about the past that we must take and of the path that we no longer must take pics with the relaunch investment. this is a priority. besides, our universities would never have been autonomous if we had not given them the means that they need. this is what we call the campus plan. what would be the efficiency of our efforts for public research

if in parallel we have not privileged the development of private research, or research for tax credits? and we would not have a green economy if we have not started the environment. the program of investing for the future that we have announced with the prime minister on december 14, 2009, represents an effort to the tune of 35 billion. i think we can say that never in its entire history, france has made such an effort for investment. france has been denied the assets, its spirit of enterprise, modern infrastructures, basic research of world rank, excellent industries in air and space, space, health, agriculture,

digital. we have in france nuclear energy which is the largest independent in your. and thanks to agriculture we have total -- but these assets are sources of growth only if we know how to multiply them through research and innovation. hints our commitment. france must remain the land of production. production works, our real wealth. we think that too often we forgot that. we forgot that reality. any wealth before you can redistribute it must be produced. france in the past was not interested in redistributing. it's a considerable subject, but it seems to us that france for got too often how to produce wealth, because if you did not

produce wealth you cannot distribute it or even redistribute it. the only way you can take advantage of this and not be buffeted by it is innovation. research, investment. you can see what's happening increase. -- happening in greece. reduction in expenditures is not enough to overcome the crisis. in order to overcome the crisis you need to reduce expenditures and increased growth. there's no better path to increase growth, but innovation, research and investments. and soon as we announce investing for the future, we realize that the topic was very difficult. priorities have been defined by the commission chaired by others, priorities are not going to go into detail. you know them. a year and a half after launching this program, i wanted

to take stock with you on how we have used the 35 billion for investing in the future. they worked day and night. we can tell you. before the end of the year out of 35 billion euros, already 20 billion euros have already been committed in order to finance projects. before answering her questions, perhaps i could already tell you how this investment program is organized and well organized france for too long. first, we had a method that we device with the prime minister. this method can be summarized into words, selection and excellence. i know that these are not easy words, but we insisted in avoiding -- this would not have

created the means for the growth that we needed. nothing would have been worse than being spread all over the place and being inefficient. so we decided to use international jury and create the 11 centers in our country, around the idea of excellence. this mode of selection really created exclusivism among researchers and interpreters, since around 1500 projects, never and france have we seen such an emulation such dynamic -ism. of course, it is proportioned with what we are proposing. second, the administration is not only the sender that selects the projects. the state, administration is an investor, i hope, the premise is a clever investor that is, we want to limit subsidies in order to privilege equity.

when there are subsidies they also come with royalties in the case of success. the administration takes risk with the research stakeholders, but every time, the ministers wants to share benefits. third remark, was the multiplier effect that we hope that the 35 billion euros of public money will turn into 60, 65 billion thanks to the cofinancing we're asking of enterprise, or local. so i've heard the criticism. i have been criticized, and as usual, you can find some truth in criticism. we have been too selective. perhaps. but we prefer to be selective to not being selective. which was the case so much in the country in the past, in which was a waste one must thing. cumbersome procedures, well, it's true that we didn't want

for the funds to go straight to the agency's. we talked about that with the ministers so that they wouldn't be tempted to use these funds for current expenditures, or to spend it for their pet projects. projects that they've had in their drawers for years and years. we really wanted these projects to come from researchers, entrepreneurs, risk takers to have a maximum chance of success. so, out of the 35 billion euros we have decided to earmark 22 billion for research and universities. this on top of the campus plan and the increase of 20% of university budgets since 2007. all this is considerable. already we have selected 100 laboratories of excellence projects which will be given about 3 billion euros.

which, of course, answers a fear or an accusation on the fact that in the past we have always centralized projects. in the documents that you have been given, i don't know if you've already read them perhaps, you will see the map of france. these 100 projects of laboratories of excellence are spread all over the country. and thanks to the capital that they will receive, these researchers for the first time will know stability over the next 10 years. 52 equipments of excellence which will give to our laboratories the possibility of being in the front of world experience. 400 million euros. what we want is real innovation economy. the institutes of technological research will receive 2 billion euros. these institutes will gather in

a public-private partnership on the unique campus, the best deans for training, research and development. can be corrected. we want to keep our industry, develop our industry, put our industry on the front of innovation. this is the goal of these technology institute. six institutes have decided. these are the showcases of france. materials and steel, rail, composted materials. it sounds like a poem perhaps, but it shows that it is not only in paris or the paris region that we do this. and besides, two more projects

are being studied in digital industry, one in brittany and another one. because we didn't want for all projects to be selected in one fell swoop, in one center. the risk was too large, that we would miss interesting initiatives. so we don't first call for projects, and in others before the end of the year are going to join in order to give more chances to teams that had lost in the first round, and to make sure that nobody goes through the net. we emphasized health, which is part of french excellence also, and it's a major actor in future years, 2.4 billion euros, lost 1 billion euros on peripheral action. we have chosen six university hospitals, which will receive 850 million euros in order to

accelerate the transfer on the transfer of scientific discoveries for the patients, which we realize many french researchers were discovering new processes, but it was not our industry that would take advantage of it. and then there was a long delay before, between the discovery in the patients. and so these universities in a way, which are six super university hospitals, if you want, will also have eight national centers and 10 public health centers that will determine it for the long-term the factors that will do with big diseases under two prevent them and teacher than. now, we have noted with the prime minister and we worked all weekend on this, that different

choices that we did following an independent jury, forgot cancer, or didn't deal with cancer. that was the rule. you go for excellence, you go for international juries. we cannot change the decision of these juries, otherwise what use would that be? i mean, the selection process has to be respected. but we thought that it was impossible not to have hospital institutes dealing with cancer. and so we have asked others, seeing the second stage of the cancer plan and what the national institute for cancer is doing to make proposal on the specific question of cancer. in order to have a dedicated

university hospital center. at the beginning of july, we're going to announce the first selection of these excellence initiatives, 7.7 billion euros. the winners will be the beginning of the major sites for french scientific research, not all universities will be part and parcel of that but we're going to select world-class university centers at the level of the best universities in the world. not all will be excellence level, but all universities will have fallouts of this research. in every sector we decided to privilege the link between research and the use of research wherever there's university research. we have to organize its use, simplify it and make it more professional. so we're going to create 12

companies, either regional or multi-region companies. five have been selected. other projects will improve, but in the long run it's all over the country that we want to encourage the use of research. 900 million euros, we want to make research more practical, as most practical as possible. it's an effort that has never been done until now, especially downstream where we want to create companies, we will have national seed funds with 400 million euros. it doesn't mean that only the biggest companies have a chance every university, every region must compete and use its strength. but we think the drive toward excellence have not dealt sufficiently with education and training so far. so, it is indispensable that excellence initiatives must be

forwarded. and we've asked them to make proposals that will allow to support projects dealing with training itself. all the pedagogical initiatives and new pedagogy that we want to encourage and develop with the investing for the future program, most of you were giving funds to 700 small indian enterprises. with 1 billion euros we help them to reindustrialize. it is ever without any precedents to french industry reindustrializing. we also investing in large industrial research projects, air and space, car of the future, renewable energies, energy efficiency, waste recycling, nanotechnologies and digital. so the investment program will

finance the new generation rocket to succeed, the ex-for helicopter, the new engines for airplanes for the future, using a lot less fuel, and in terms of energy and sustainable level of development, the program for investing for the future will be in parallel with our energy strategy. we're going to dedicate 1 billion euros for nuclear programs of the future, especially a fourth generation reactors. and also we are going to give an important means from this larger borrowing for investing for the future in order to strengthen research in the field of nuclear safety, a field where france is a leader, and everybody knows it. but the minister wanted for us

to invest on safety. of course, this is complementary with all the stress audits that we did on our power plants. so we are putting funds on the fourth generation nuclear reactors. and on safety processes. which also will allow us to invest 1.35 billion on renewable energies, and a zero carbon production. so, the program investment for the future will contribute to the financing of a pilot project of co2 storage, a project which is really dear to my heart, more on nuclear safety, more on fourth generation reactors, and more on renewable energy. france does not need to turn its back on a given sector. we are working on all the

sectors so that the french and french industry have an energy that is competitive, at a competitive price, and so that the french can use energy at a price that preserves their purchasing power. we also are supporting waste recycling, and with an economy that uses less raw material, thanks to the intelligent created, and the housing insulation campaign. finally, we are going to finance networks and content on networks. our ideas for the internet to have very large bands. 70% of the french citizen should have it in 2020, and 100% of the citizens should have it in 2025. we are going to have strategic investment. for instance, data processing

centers which will allow us to keep our national independence. this is a topic i'm sure that you will want to talk about later. ladies and gentlemen, you can see that this is a very deep political choice. we are trying to convince the french that borrowing to create growth and wealth is a choice for the future. and that the response and the crisis is not only in saving shortcuts or deep cuts in public expenditures, but in encouraging growth potential for tomorrow. france is facing a world that is completely new, with competitors that are not waiting for us, that are not here to help us. but if france wants to remain a grand nation, if france wants to continue preserving its financing model, france must invest massively innovation, research in university, health, digital and industry.

these are the choices. i'm sure that it could be criticized as to the method, a political will to encourage investment as it has never been done in this country. i think this could be the topic of consensus for all those who are preoccupied and concerned with the general interest, which should be the major concern of all political actors in our country. if you want, can answer your question. yes? [speaking in french] >> translator: after fukushima you dealt with nuclear safety. have other projects been reviewed and alternative energies? [speaking in french] >> translator: we proceeded to three orientation. and, of course, the ministers can correct me, but we have three reorientation's in health,

cancer -- cancer destroys too many lives. it's a disease that is too widely spread. too many destinies are destroyed by that. we want to have the world center for research against cancer. the french problem is that we had a lot of centers of excellence, including around paris on cancer. can we pull them, can we pull our forces order to really have a world-class center? that's the first reorientation. second reorientation, i will answer you, but let's be clear. compared to the commission in the work that we did in the past, it's the pedagogical excellence initiative. it's true, laboratories of excellence, equipments of excellence, all this is good but we saw that they were new

pedagogical methods in universities. and that if we wanted to have the best universities in the world we should work on the campus, of course, on the equipment, on the material, on the capital for universities, but also we should privilege pedagogical initiatives. new projects, new programs, new methods. whole world is moving. we can't just stay static with teaching methods that were already there 50 years ago. so what we need is to prepare for the 21st century. and, finally, third element, still in reorientation, nuclear power. with the particular field of nuclear safety. france has a considerable advance on all the other countries in the world. that is why france has lost a few contracts in terms of nuclear reactors. because our reactors are more

expensive because they are safer. but we want to invest even more in nuclear safety. so in terms of energy, three sectors. the fourth generation reactors. people are asking me what about the moratorium on nuclear power? who signed this proposal -- who find this proposal bizarre? the mature -- the moratorium is what? you don't do any research so you keep the old power plants? to keep the ones that are less safe? then you're not doing anything in terms of safer was. this makes no sense. so we are investing a fourth generation reactors. in terms of renewable energies, we have massive investment. the prime minister and myself have announced 12 billion euros of investment for wind farms in

the ocean. at sea. 12 billion euros. solar power has been multiplied by -- wind power by 18. so zero carbon energies, we are investing in debt, but we think that one of the most promising energies of the future is energy savings. it's energetic efficiency. so this is what we are working on. the plain of the future, if everything is, that is, to say a lighter airplane, the electric car, sometimes i'm asked have you chosen, is it going to be hybrid or electric? we are not choosing. we invest massively with the private sector on lighter vehicles, on the hybrid engine, on the electric engine, on

bonuses. the bonus system. you know that the french fleet is the cleanest fleet in your. thanks to the bonus system. so we don't want to choose what is a good energy or the less good when. we want to invest massively in order to be there in 2020 with 23% of renewable energy in the french energetic landscape. but everybody knows there's no alternative to nuclear power today. all the specialists will tell you. so we have to work on nuclear power come and work on renewables. the last word on people who said we should abandon nuclear power. these are the very people who want for france not to fulfill it copenhagen commitments in terms of greenhouse gases. because if we want to keep nuclear power, it's because we want to remain independent. we want competitive energy, and we do not want to impose the

french incredible increase in the price of energy. and because nuclear energy does not produce greenhouse gases. it is a clean energy. so we are very logical with ourselves in terms of energy investment. [speaking in french] >> translator: i'm not going to choose who is going to ask. [speaking in french] >> translator: in the documents you gave us you give priority for investing for the future and to university research and information. what do you think of this scandal and the baccalaureate? don't you think parents are anxious about the future, so are their children? what about all these thoughts on the baccalaureate? don't you think the baccalaureate is obsolete? what do we think? [speaking in french] >> translator: the minister of

national education was on tv yesterday. he talked about it. he was quite sensible. i fully support him, but if you don't mind i'd like to concentrate on investing for the future. in the framework of that, i didn't talk about financing the baccalaureate. so i know that it's in the news. i'm aware of it, but i'd like to convince you of one thing. what we are talking about today is very important for our country, for your children, for yourself for the next 20 years. i know that the news, all consuming and it's fascinating, but it disappears. where as investing for the future, 20 years from now we will still take advantage of it. so the question is, is france going to be stronger after the crisis or less strong?

can we altogether draw the consequences of the failures of the past? we all collectively responsible, can we face the future? what did we failed in in the past? too many taxes in france that destroyed initiative. too much public expenditures. it's too heavy. not enough cuts. all the sectors are concerned, why are factories moving a broad? because our taxes are too heavy, because our products are not competitive, because we did not invest enough. that's what happened. we wanted our universities to be autonomous, but if you don't give them the means, it's useless. autonomy is not in and of itself. autonomy for universities, it's a means to an end. and i'm very happy that it is the government of france that has made a huge effort for universities without any precedents in the history of the fifth republic. ..

the least bad solution,

preserving the republican equally. there is no good answer. people have already read the text of the exam. i mean, what do you mean? people who have succeeded are unhappy? if you cancel the exam, people will succeed will say why cancel this one? i mean there is no good solution. i think that his solution is the best of all the bad ones. but i'd like to come back on investing for the future and research. mr. president, in terms of the industry, production is inferior to the level of before the crisis. and our trade deficit is huge. compared to the long term that you're talking about, don't you think we need short-term measures to preserve employment in france? >> translator: well, i think these measures we have already taken them even if it was not really understood at the time.

we did away with the professional tax. this is to preserve our factories in france. people who were keeping the factory in france were rewarded by a heavy professional tax that only existed in france and nowhere else in europe. i mean you own the company. you own the factory. if you stay in france you will be heavily taxed. if you move your factory somewhere in europe you're no longer taxed. i think this is a measure we took. 6 billion euros less for the treasury. the research tax credit, over 4 billion euros. we have the tax code which is the most favorable in the world. why have we lost market shares? you're right to mention it. first because we have more competitors and they are better. let's admit it. and on the other hand because we did not invest enough.

we're not competitive. that is the reason. and that is why we did away with the professional tax, that is, why we have this research tax credit. so that our companies become more competitive and that we regain market shares. the problem is that whether we're busy doing the 35-hour week, other people were concentrating on improving their training, their education, their investment, their manufacturing profits. that's how we got backwards. that started in year 2000. so what are we doing? investment for the future, for the next 20 years and the entire policy that we decided to set up, but, investing in nuclear power, it is good for french industry. the decision taken by a german france, 40 to 45

billion euros they will need to in order to replace that energy. anyway, we can not go on like this. we can not keep on ignoring the rest of the world. the question is that we have to prepare france for the challenges of the 21st century. and also to keep on financing our social model. you see, today, the questions that are being proposed. of course you have the debt question. in order to reimburse the debt you need growth. you need savings and you need growth. the interest of the debt is over 40 billion euros a year, every year. and businesses are going to stop after the presidential election after 2012. this is a topic that every french citizen must deal with. i have not been elected so that france goes through the tribulations of greece, portugal or ireland. i mean the time to talk is over. we have to act and this

reality is the reality of today's word. nobody can do without it. too many current expenditures. too many public expenditures. too many public jobs. not enough research. not enough innovation. not enough investment. and i promise you, this is not a question of left or right or majority or minority. it is a question of general interest. there is no other choice for the country. this is the choice we all have to make because it is that path that all successful countries have chosen. and if france decides not to take that path, it will bay with more unemployed, with more factories going abroad, and with less purchasing power. and we won't be able to finance our social model anymore. you can't avoid it. whether we're choosing to work only 35-hour week, the

german neighbors were choosing to do investment and competent activity. today they have less unemployed and smaller deficit and stronger growth. here we are. our greek friends, just like our portuguese friends and our irish friends are paying dearly and especially in greece. the negligence of preceding governments that didn't want to see that when you're doing efforts in time, you avoid disaster. that is the situation they're in right now. and it is not by chance you see that france did not have to go through that because, our ranking has been preserved and we can still borrow at good rates. two years ago greece had to borrow at 30%. france only borrows around 3%. so those who want to go back

on my decision to not replace civil servants who are retiring and the golden rule that will impose a balanced budget in terms, if you don't want to do that the debt is going to explode, the deficits are going to explode and france won't be able to finance itself. it is not a question of politics of left and right, believe me. it is a question of good sense and general interest. the whole world knows it. and especially if you want to preserve our social model. in order to preserve our soes -- social model. because we don't want to touch it. we want to preserve it. >> translator:. first, will there be a particular method in order to assess the return on investment for the administration and number

two, because of all the european problems, it is essential for france to have the finance minister. when are you going to name a new minister as madam la guard has been chosen in washington? >> translator: you went south and you moved north. what a maestro you are. congratulations. every year we want to assess publicly the rythym of the great borrowing. see what the projects are that have been retained and see what are the results of the projects that we retained. every year. of course, there will be a press conference but also there will be parliamentary debate so that the parliament is associated.

35 billion euros, it's a huge sum. it is normal that the method be specific and it is normal that there is an assessment. the things are extremely clear. of course, how do you assess the university, but realize our universities were the only universities in the world not to be autonomous. not to have any capital. but, well, what do you do with capital at the university? you can invest. you can guaranty loans. you can have real autonomy which was not the case until now. one wonders where do the teachers, these university professors find the strength to succeed without any autonomy, without any funds whatsoever until now.

so total transparency on the and total transparency on the result including on royalties and of course on failures that we are sure to get and on the success. as to the rest, i'm going to wait for christine lagarde for whom i have great friendship and trust is chosen and then i will decide who is the prime minister and what are the consequences we draw but it is not done yet. but there is no question to talk about it or to answer your question. seems to me there is a minimum of decency that we have to have towards the executive directors of the imf. they would be very surprised to see that we would act as of they had already decided. up to the last minute we're going to respect their decision and wait for --.

>> translator: mr. president, please you're talking about investing for the future. i have a double question. first, when you compare our trade deficit to that of germany you see that germany has invested in industrial sectors, machine tools and so forth. and also on smes. my first question is the following. how do you see france ten or 20 years from now? what will be the strength of france 20 years from now? do you think that investing for the future, that you're doing is going to solve the trade deficit, the chronic trade deficit of france? >> translator: what is sure, you're right, we have to choose. we can not reach world level in all sectors. this is the big problem when you want to invest for the future and where you want to invest for the future.

french tradition is that we take equality for equal tearianism. if we done as usual, we would have divided the 35 billion euro by regions and each region would have exactly the same sum. we didn't want to do that. number two, if you take the example of industry, we have selected with a christine lagarde, ten different industrial pillars that are major. energy, i talked about it. you can not conceive after strong economy 20 years from now especially in a country that has no fossil fuel energy without very, very powerful energetic policy. it's an important topic. i mean our german friends are facing it now.

number two, health. health is a major industry. france has a system of health coverage that is unlike any other system in the world. it is not only of course to pay royalties to american labs which are of course excellent but we would have a system that protects the health of french citizens which would reimburse the research effort by making large foreign labs rich. i mean it's a huge subject for us. number three. there is no saving possible, no economy possible if we don't keep transportation industry, airplanes, rail, automobiles, ships. it is major. the experience in the world show that just for automobile is 10% of our working population. so we think that our industrialists alone can not work on the plane of the

future, the car of the future or the ship of the future. if i were to take another subject, look at textiles for instance. textile will remain a french reality, more on a niche than on a whole scale industry, industrial industry such as we had in the 19th century. i could take other examples. communication. in today's world it is a major major subject. the large communication groups in the orlando are english-speaking. and if you're looking at french groups, their size in the world, is not yet there. and when some world class, don't have television and when they are in television they are absent in other

sectors. the investment we want to make in digital industry is very important for us. so, clearly, it is not up to me or up to the prime minister to decide 25 years from now where we're going to be, but the political commitment that we are thinking today to make choices. we can't do everything. look at the shipyards, for instance. the prime minister and i really think it is special for different reasons. i'm sure that in the leisure society of the 21st century, cruise liners of the new generation have a great future and in france for years and years and years we have been building fantastic ships. if we had not taken 30% of the capital of the shipyards it would have disappeared. one century of skill, of

know how would have disappeared if you make the wrong decision. it is not a secret to say that i did not like the decision taken in 2000 to abandon it. i think it was a mistake. i said, and i think, doesn't mean that i'm right. i think it was a mistake to turn our back on the chemical industry. i know the problems of the chemical industry but can you imagine a large economy without any chemistry? i mean this is the type of questions that, at the same time, if siemens had bought alston, siemens is a remarkable company. what would have happened to the french high-speed train today? where it would be? so, a certain number of sectors, just the same for health. we know that we are going to have to spend more for the health of french citizens because treatments are more expensive.

because science has made progress and you have to pay for it. because people are less and less pain tolerant and this is quite normal. but at the same time, do you think that every city can have a cancer center? i mean a team that does research in its own little corner? don't you think that we need to pool them in, just around paris, there were three liver transplant centers. i mean these are extremely sophisticated techniques. don't you think we should pool them and give to the west team the -- the best team the means to exist at a world level? that's what we are building right now. so these choices, we're not alone to make them. we're talking to professionals and to the industry of course about all these choices because we don't know everything. we're not omnipresent.

international juries, assessment, this is really the policy that i want to choose. even if i can't tell you what are going to be the major sectors of the french economy ten or 20 years from now. >> translator: mr. president, you said you were not elected so that france would know the tribulations of greece and i know you're working hard with your partners on a solution to the financial problems of greece. is it true that the french treasury and french banks propose a plan in order to reinvest 70% of the greek debt in new borrowings, in new loans over 30 years and the other 30% would be placed on zero coupon notes? is it true? >> translator: yes. >> translator: and do you think this proposal could be adopted by your partners? >> translator: i hope.

with christine lagarde we are working on that. and when i went to, not last week but the week before in berlin and with chancellor merkel we decided to launch the basis of a compromise on the voluntary participation of the private sector in the greek tragedy. we committed ourselves to go from the principle to the concrete realization. the principle was the voluntary participation of the private sector. why? because if it is not voluntary it would be perceived as a default. with a huge risk of disasters in cascade, immense risk. so, we worked very hard for the finance minister worked very hard with the banks and insurance companies. not only the banks. insurance companies as well. on what could be a voluntary participation of the private

sector. and we concluded that by spreading the loans over 30 years, by, bringing them to the level of european loans, plus, an indexing premium on greek growth there would be a system that each country could probably find at least interesting. the idea that we're not going to abandon greece. we're going to defend the euro. this is our interest, of us all. it is our interest. those who propose this folly that would be the exit out of the euro, it's a folly. it is something that is completely inane. why? because i remind you that france has a debt of 500

billion euros, in euros. if france or another country gets out of the euro, it's currency is going to be devalued but our debt remains in euros. going out of the euro would double or triple the debt of the country going out of the euro. i mean it's an argument i have not heard a lot. i am surprised i have not heard it a lot. do you understand me? if you have a debt in euros, that debt remains in euros. if tomorrow you get out of the euro the first thing that happens when you get out of the euro is that the national currency will be devalued compared to the euro. if your national currency is devalued your debt stock increases mechanically of the level of the devaluation of the euro. that is to say, people who are advocating the exit of the euro are advocating the tripling or doubling of the debt of the french. it is crazy. i don't know if you

understand me enough. and i also think that the euro is a formidable progress in the european construction. it is europe and if we're no longer in europe, well then it is confrontation. who thinks that alone we would be stronger to face the world as hard as it is? the competition in the world? no. these are, it's, it's inane. it's completely crazy. i mean i understand the reality of politics. i was part of it. but there are limits. and the limit is responsibility. and it's the general interest. that's what it is. there's a limit. but also, say that we have

committed ourselves to reduce our deficit in front of the whole world. nobody can question us on that. nobody. nobody. of course our greek friends will have to make efforts. both majority and minority. that's for sure. and the project that we made is being debated right now. as one of the elements that we hope to be positive. we can amend it of course. we are ready. the french project is not the al fa -- alpha and the omega. >> translator:. mr. president, in your introduction you said that we underestimated the crisis. you said we. are you part of that? did you underestimate the crisis? and this general understatement of the crisis, perhaps justifies the fact that we are disappointed

about your results in terms of purchasing power? is that why the french are losing confidence in the future? >> translator: i tried to follow you. but no, it was presented with such courtesy and politeness and i thank you for it. yes, we underestimated the gravity of the crisis. why? because the crisis caused a lot of suffering in the world and it caused suffering in france, less than in other countries. i do not underestimate the suffering of the french in the crisis. 500,000 unemployed people more but less than other countries. and do not think for one minute that a crisis we've gone through was a crisis just like the others. it is not true. why? because for the first time in the history of the world we have known a crisis that was touching, at the same

time, all sectors and every region in the world. crisis in the past, including the 1929 crisis. we're hitting advanced countries. we have had asian crisis. we have had latin american crisis. this one hit absolutely every single region in the world. everywhere you look, it was collapsing. and we came very close to catastrophe. in my tulon speech i promised that the would never be ruined, that the bank plan would allow us without spending one cent of taxpayers money to preserve the french people's savings. we kept our word. but, the world came very close to the abyss. it is a reality and besides, there still is, there still

are many reasons that could cause in the future a return, maybe not exactly the same, but a return to the same type of situation. and, i don't want to be a casandra when i say that people are disappointed on the purchasing power. i don't remember ever having seen one government where the citizens thanked the government for the purchasing power and for our efforts. so i know in terms of purchasing power my government, just like the ones before, will never quite be able to convince you but, remember, that they are professionals. there are indices. what do they tell you the indices. the official ones the independent ones, what do they tell you? they say even in the heart of the crisis in 2009 french

purchasing power progressed in france. am i wrong? yes or no? well the french think. that's a comment. i'm talking about indices. what do independent indices show. the french national statistics indices that measure the evolution of the purchasing power with of the french, what do they say? they say that in the heart of the crisis in 2009 purchasing power went up. the french don't believe it. i understand that. but if the indices were saying the opposite you would have started your question by saying, statistics show that purchasing power went down. what are you going to do to reverse it? you didn't start like that. you said, there is a problem of trust towards you, so you made a comment first. then you went to the fact, my answer is to start with

the facts. and to try to change your comment. but it is what i wanted to tell you. including on civil service. i mean do you have to tell the french that some european countries have decreased public service salaries by 15%? pensions by 15%. we didn't want to do that. some european countries decreased the allocation for handicapped adults. we, increased ours by 25%. in some european countries they decreased by 25%. scholarships and universities. not very far. i'm not, i mean just across the water there, you know, we didn't do that because we're increasing scholarships in france. our answer to the crisis is to create some savings but to invest because i think that a country that went through such a crisis can not retract or contract but

do not minimize the gravity of the crisis that our country just went through. . .

>> translator: to say we're not thinking of next year, nobody would believe me. but i have a specificity, i am the president of the republic. i have duties, the duties of my mandate. i cannot do as if i didn't. it is normal that politicians who do not have the same duties, who are not -- who do not have the same responsibilities think about themselves. think about their political family, about their parties, normal. this is the game of democracy. but i cannot afford it under president of france, i'm the president of the g8, i'm the president of the g20. i cannot afford it and i'm not entitled to do that. before even thinking about another term, i have to think about finishing this one. the french gave me five years.

i've already done four. there's a little bit less than one year to go. it is my duty. i have no choice. i have duties, obligations, an agenda, responsibilities. i have to be accountable. i need to show results. i have a team with the prime minister that i have to manage. i have to take decisions every day. i cannot think about anything else. the time will come, but it is not a formula. should i say. it is not -- because of style. it is a reality. and believe me, i feel that every day. every day i have to take decisions with the government, with the prime minister, difficult decisions. and, of course, the task is very complicated but it has to be done because there's no choice.

and if we don't do that, if i don't do that, who will do it? so let's get rid of this disease, this habitual disease, consisting of thinking what are you going to do later on when you have not even finished to do and being accountable about it and i will not budge from that conviction because it is my duty through 2011. as i said in my new year's wishes, there's no other choice, believe you me. before the end of your term, are you going to deal with the question raised by economists that underline that in order to preserve the future of companies, of businesses, you

have to decrease social protection, which is heavy on business? are you going to re-open this question of financing social protection before the end of 2012? [speaking in native tongue] >> translator: no. we will not have any social changes on social protection beyond the questions of dependency. i mean, not that there's no problem, but you can't tell business everything we did to be more competitive and to stress them permanently -- i mean, at the same time impose tax instability with every day a new project, every day a new tax and

every day a new change. private companies, businesses need stability. [speaking in native tongue] >> translator: do you think in the outer years social protection is on the table, of course, it will be on the table. how should our imports take part in the financing of our social protection, how to have work so that work is at center of everything so that it's not scaring employment. these are very important questions. perhaps this could be part and parcel of the debate of this famous appointment you were mentioning a fumentsz ago -- a few minutes ago. it's a toughie. so i'm not closing the door, but

i'm telling you where we are at right now. i will add that it is high time for all these subjects to be thought of in a european dimension. everything is not reduced to a french-french debate especially when we're talking taxes. let's look at what the others are doing. let's imagine what we could do together and this extraordinary important question of our partnership is germany, the strengthening of the convergence of the two economies, france and germany. because the more the world is open, the more the disparities within europe are a problem. and the more we have to harmonize. we'll talk about it later. another question, back to the debt and the deficit. given our deficit, what is the

level that you think will be a problem when we will have a hard time to find the resources in order to maintain today's growth or even to hope for a better growth in the future years? for us, the point for no return is the level of the deficit under which the debt of france decreases. that is the redezvous if you want. you won't have to be an economist. you know that. around 3% of the deficit given the progress of growth, the debt, the weight of that decreases, that's the point. that's the tipping point. you don't need to have 150 criteria, above 3%. the debt compares to national wealth below 3%, little by little the debt of the country

decreases, not in absolute terms but in relative terms compared to the economy. that is the tipping point and we have made commitments to meet the 3% in 2013. this is not a question of being a socialist or liberal or left or right. the european council around the table they are governances of any political collar but it is good sense their general interests we cannot keep on spending more than what we earn. to have a deficit in terms of crisis, it's normal. in 2009, we left 22% of tax receipts in one fail swoop but when growth comes back you have to think about it. it's not because it's of mr. sarkozy it's because in the

superior national interest. that's why. [speaking in native tongue] >> translator: the socialist have the primary campaign this week. have you studied their economic proposals and does it satisfy the criteria that you mentioned in your speech [speaking foreign language] >> translator: well, i don't want it to be unpleasant but the analysis didn't take much time, you know? i can imagine that their proposals will be explained and we'll talk about it when they will be developed. [speaking in native tongue] >> translator: let's come back on the method and the borrowing. you dealt with local actors, it's first. what is your judgment on the regions which are on the left and on decentralization in

france [speaking foreign language] >> translator: dealing with local actors, not really. i was very impressed by all actors. i did not expect such a festival of innovation of initiative, even small teams sometimes that looked like losers on paper and that were retained. i mean, it's extraordinary. and what touched me even more is that this happened outside of the administration. if you look at local proposals in some labs, in some universities that went outside of the university board. they mobilized, they sent their proposal and they won. so to me it was like a huge breath of fresh air in france where all of a sudden, the different levels of the hierarchy were no longer an

obstacle but you could go around them. you could go without the initiative steps besides in terms of decentralization. i mean, it's the entire reform that we have started. and it's the first stage, i'm sure, that we need more stages later on but municipalities, the departments regions stayed -- i mean, we have too many layers. we can't go on like this. this is not decentralization. it's a different layers of cakes that are heavy, that need to be financed. there are turf wars. that's why we wanted to have a territorial reform that would bring the department and the region together with the same actors so that at least they can talk to each other. it's the same people. today in many regions the

department doesn't talk to the regions. they have 20 billion of common spending on the same sector between the department and the region. i'll comment on that later on. the last question, please. [speaking in native tongue] >> translator: bloomberg news. you were saying that the state was mobilizing to invest in the future. do you think that businesses that are paying really high wages like several millions of euros are not really working for the future? do you intend to tax these businesses? second question about libya, are there any discussions to get mr. gadhafi outside of the country? don't you fear that some of your allies might decide to leave the

alliance? >> i don't think it's high wages are very high wages that would prevent investment in the enterprises but i'm shocked by it. sometimes one wonders if some leaders and businesses are living in the same world that we are living in, i mean, frankly, it's true. you can ask the questions. i mean, one wonders. some banks were in a very difficult situation. and -- i mean, i mean, it's okay. you see incredible bonuses. it is not questioning my investment but it's shocking. it is shocking that somebody who discovers a new process, who creates a new invention, who starts a business from crats and who earns a lot of money because he himself invested his own money, invested his own life and that the reward is there.

well, so much the better. look at bill gates. look what he brought to the u.s. formidable, incredible but somebody who is just the leader of a big company and because of a windfall all of a sudden sees the 25% compensation increase. or his company was in a dire situation just before -- it's shocking. i'm shocked. sometimes i'm wondering what are they thinking. the proposals, we support them. i would like for a little bit more commonsense to come back. so the government wouldn't have to react every time with a law. i mean, this is not the best solution. i recognize it. if we could have more commonsense, if people could understand, number 2. i will tell you the truth. i have not understood at all the

violent reactions by the president of the chamber of commerce by the bonuses. i mean, we could have talked about it. i mean, how can you tell wage earnerses we have a tightening so shut up. it's shocking. i'm not saying the government's project cannot be improved. of course. but why such a frontal of a position from business? it makes no sense. if there is money that can give to the shareholders because you made huge profits, perhaps you can give some to the wage earners or the employees perhaps they contributed to the fact that you made more profit. one thinks sometimes that the simplest things do not -- the

government is completely determined if the company gives more dividends and makes more profit it is normal that the employees could be rewarded for it. not only to shareholders, the employees, the employees can't. as to libya, that's another topic. all i can say is i was rather shocked to hear about the french military investment. i remind you that last year france has invested 18 billion euros in military equipment and research that, of course, has fallout on our industry. 16 billion euros on military research. and i pay homage to our soldiers who are doing an incredible and outstanding job and as to libya, mr. gadhafi knows exactly what

he needs to do for peace to come after 41 years of dictatorship, perhaps it's time to stop. let him leave power and leave the libyans to envisage a democratic future. it all depends on him. the last -- very last question. [speaking in native tongue] >> translator: mr. president you keep on quoting germany but it seems there are more and more divergences between the two countries. there's 1 billion in the investment plan. when germany completely leaves nuclear power for 10 years from now, you saw the same on greece, on libya, on the economic results, don't you think we have a grave problem in terms of europe since the franco german couple is supposed to be the engine of europe. as to the economic results, our countries do not diverge. we are the two engines. we had 1% growth in the first quarter. of course, in germany they have

a higher growth but in order to talk about divergence it would be a -- france would be in the recession and germany in growth. we are both growing. we have a strong growth. but it is true that we diverged on different topics. so if i understand, we should renounce nuclear power because our german friends renounced it so as the french president, i should turn my back to charles de gaulle and others because the choice of nuclear power was confirmed by them. like all the other presidents. you can see the complexity of all the things. number 2, should we have not gone to libya because our german friends who participated in the

paris summit didn't want to be in it? what would have been the ambience of the press conference they would say i'm a follower of them. so i have the choice between deverging or being a follower. let me choose a third path, a french path, an independent country that makes its own choices that choose to gather around its european partners with my role with the government is to defend the superior interests of the nation which is to have an energy that can guarantee our independence. and superior interests of the nation, for france to be faithful of its history and its message. benghazi was going to be slaughtered and thanks to the french military and its allies, benghazi was saved. just that. it seems to me a justification for investment. as to the rest, it's because we

don't agree on everything that europe is based on compromise and efforts. it's not simple and there's no other choice. and believe you me i prefer this to what preceding generations knew because the preceding generations knew another end. it was a war. that's why there's so much on which means peace. [inaudible conversations]

[inaudible conversations] >> the senate was scheduled to take a week-long break for the july 4th holiday but majority leader reid decided to have senators to return today to continue negotiations on the debt and deficit. on the floor military operations in libya starting at 2:00 pm eastern with a vote on moving the resolution forward at 5:00. the house is out for the fourth of july holiday. lawmakers return to legislative business at 2:00 eastern on wednesday. the main work this week will be on defense spending for fiscal 2012. also expected the flood insurance program.

you can see the house live on c-span and the senate on c-span2. >> now available, c-span's congressional directory, a complete guide to the first session of the 112th congress. inside new and returning house and senate members with contact information, including twitter addresses, district maps and committee assignments. and information on the white house, supreme court justices and governors. order online at c-span.org/shop. >> blackberry users now you can access our programming anytime with the c-span radio app with four audio streams of our program, public affairs, nonfiction books and american history all commercial-free. you can also listen to our signature interview programs each week and it's all available around-the-clock, wherever you are. download it free from blackberry app world. >> president obama signed into law the financial regulations bill known as the dodd-frank act

a year ago this month. the pew financial reform project and new york university's business school hosted a conference focusing on the implementation and impact on the legislation. in this portion regulating shadow banking system when nonbank financial institutions act as intermediaries between investors and borrowers in lending money. this is about an hour. >> all right, ladies and gentlemen, up to now it's been prologue. we now get to the meat of the issue which is systemic risk. it has become the meat of the issue in the last few years. everything else is sort of spinning around this target. greg, the floor is yours. >> thanks very much, charles. it's a pleasure to be here. it's kind of surprising that

we've forgotten already -- the banking sector continues to dominate our attention and the headlines, this morning we're reading about the new capital surcharges in banks in basel switzerland. the volcker rule arguments between jamie diamond and ben bernanke dominate the gossips columns such as they are in the financial papers. [laughter] >> you would be forgiving thinking about the is the aftermath of the banking crisis. the crisis of the nonbanks. it began in 2007, remember. the signal event was announced by hsbc the bank but the problem hcbs was in its nonbank which was known as household finance a leading subprime lender and those problems then tended to propagate from there. they essentially started in the darkest least regulated parts of the financial system and chewed their way up like a disease that eventually -- or a flood that

eventually attacked the ram parts of the strongest building so we worked our way through banks like new century and worked on commercial paper and then monoline insurers. finally we brought down bear stearns and the lehman brothers. it's only then like the citigroups and washington mutuals and bank of americas, you know, saw their very lives threatened and so you call this introduction by saying that the penalty we're going to talk about is ask the question with all our attention focused nowadays in the regulatory arena on the banking system whatever happened to the shadow banking system? you know, where all the problems began? and you can sort of think of this in two ways, at least i think of it in two ways. there's two opposing forces at work. the -- the immediate force is the flight of safety force which basically is that in the aftermath of the crisis, the weakest have all collapsed. the ones who are most associated with the excesses that brought on the crisis. they're gone.

they're gone or they have been bought out or changing their charter. and if that's the case then we don't really to have worry about a shadow banking system because it basically imlated itself. there's another way as time goes on memories are short and nowhere shorter on wall street and that eventually as the natural tendency is to focus on all our regulatory efforts on the guys who had the misfortune to survive that we will create a 2 tiered system where the banks will have to have higher capital standards and liquidity and so on which will create an unlevel playing field and open the floodgates for the shadow system to reappear in the other form. in some ways i think it is quite possible that the end result many years from now will be looking at some of the exactly the same issues that we perhaps unknowingly allowed to bring on the crisis. anyway, to discuss these issues and to get very, very sort of like in the weeds on some of them we have a great panel of experts here who will discuss various aspects of the shadow banking system.

and rather than introduce them all at once you all have biographies i think you have in your packets there so i'm just going to launch right into it with a few questions based on the areas of expertise. immediately to my left is tobias who works for the federal reserve bank of new york. and anybody who has been following these issues is very familiar with his work. it's extremely good and extremely necessary. tobias, i would like to ask you a few areas that you've been focusing on, specifically, it seems that at least in the crisis you can't go through the daze reading in the headlines about bringing us down. whatever happened to them and are they still around or not and are they still a threat to the system? >> thank you. thanks for the introduction. and thanks for pew and for you to organize this great conference. we will talk about structured credit markets and in particular the way that dodd-frank is

changi changing. there are some slides that were distributed just over lunch. so you can basically follow the slides. so we'll talk about two areas secularization -- so first of all, let me start that my views are my own and are not necessarily representative of the federal reserve bank of new york or the federal reserve system. so when you think about the shadow banking system secularization is really key of it. and when you think of the financial crisis secularization is one of the key building blocks to the crisis, in particular, it's deteriorating rapidly in 2005/2006/2007 and the deterioration of itself of

regulators to securitize and sell off risk and so when the securitizers of these assets -- when the incentives are not lined it's a moral hazard and it's linked to the deterioration of the writing standards so the dodd-frank act makes a big effort to address this issue in developing or -- in developing rules for risk retention. so there's -- there's a little chart in the handout that shows from the flow of funds, the total issuance of abs which is are mortgage label mortars and credit card trusts and other securitization vehicles as well as the gsemes and you can see this sort of like run-up of securitization in the five years

prior to the crisis and then sharp contraction during the crisis. so we'll review the credit risk rules that are coming out of dodd-frank. so section 941b requires the federal reserve board, the fdic, the occ, the sec to prescribe regulations that to -- mainly two things, so one securitize to hold at least 5% of the credit risk issue in any abs that they issue, okay, so any abs that is issued -- that is constructed by a securitizer and they have to retain 5% of that. and that will be the idea of risk retention. and they are further prohibited from hedging that credit risk, and the securitizer might hedge

the risk. and there's kind of a mini approach to the risk retention where the securitizers have a choice of several types of risk retention tranches and then we'll go with that in a bit. there's an exception for credit mortgages and i will expand on that as well and there's a many of them -- mechanism for it. and there's coming out of a proposed rule that was issued in april of 2011. so the risk retention is 5% of the aggregate face value of the security. and so they must disclose to the investor how it's constructed for the amount and what are the assumptions that are going into

the construction of the abs. .. >> there is also the possibility of an l. shape, 50/50, 50% declared between vertical and horizontal tranche. and then there are particular rules for a bcp. so i will elaborate a bit about

the a bcp but not about the cms. so what are the consequences of the many approach to risk retention is that the securitize or can choose, have a choice, but an economic perspective, some of these risk retentions outlined in a sense of better than others. in particular, the horizontal piece is the one that is aligned incentive the most and is the most beneficial effect for underwriting standards. however it might be the most costly of way to securitize from the securitize his point of view. so there might be some concern that there's a choice to effectively, you know, choose

these which provide less benefit in terms of moral hazard retention. going to the qualified mortgages, so there is a set of mortgages that extend from risk retention rule. and they're very similar to what are conforming mortgages for the gses. and so thank you our ends are basically closed in first lien mortgages, you know, used to purchase or refinance for family properties with very conservative underwriting standards like debt-to-income ratio's, other rations of a% or more, and various restrictions on debt-to-income ratio's. so you're basically. >> that these qrms are going

to become sort of high quality collateral in the financial system going forward. and they are constructed to be very conservative and very safe. now, so there's a particular section in the dodd-frank act, there's a particular section on the abcp park at. the abcp market was one of the markets that grew very rapidly in the run up to the crisis. and then just imploded very quickly in 2007. of particular concern to the regulators. just to remind you, abcp is asset-backed commercial paper which is issued by special-purpose entities are sometimes structured investment vehicles. and these special-purpose entities can be abcp converts

which essentially hold mortgages alone, and in these recipes, and issue commercial paper against the mortgages alone. and the key to these that have 100% backup line of credit from a commercial bank. so, so prior to, prior to dodd-frank there was, abcp converts yielded a kind of capital savings mechanism from the point of view of the bank as they could move assets off-balance-sheet into the convert, and write a credit line to the convert and get typically a lower capital charge on this credit line than on the out right procession of these mortgages on balance sheet.

and so basically the dodd-frank act is also required risk retention for the abcp converts. so it's again a 5% tranche, 5% horizontal tranche. it's the first of any sbe. and this actor turned out to be strongly defined with another section of dodd-frank which is 165 which describes enhanced standards for sifi. in the case of sifi dodd-frank is asking for, you know, enhanced standards, including the off-balance-sheet of the sifis. and so what used to be an off-balance-sheet activity now has to be subject to new capital

requirements, which were developed in conjunction with the basel committee. and so the basel committee came out with new rules, new capital rules, that include the different treatment of these off-balance-sheet exposures. and so essentially what the capital rules in conjunction with accounting rules are making off-balance-sheet vehicles such as abcp converts a lot more capital intensive from financial institutions perspective. so in particular, the degree to which off-balance-sheet vehicles can be used to achieve lower capital requirements has essentially been enclosed by the combination of the dodd-frank rules and the accounting rules.

and i guess i will end with that. >> and i just ask, have you touch him one other thing, which is repos. i think there's been a lot of talk about it in the market. what do we see happening in terms of throwing the safety net or some regulatory networks around repose? >> so, so i went to the dodd-frank act, and i don't think there's a direct implication of dodd-frank for mandatory reforms. there is an initiative under the auspices of the federal reserve bank of new york, which is an industry initiative. which is working on reforming the way that the triparty repo market works, but it's not directly to the -- the primary objective of the triparty repo market task force is to solve a

kind of technical issue that arises from the tribal -- triparty repo market during the day. the triparty repo market there is secured credit overnight which means 5:30 p.m. and 8:30 a.m., but intraday between 8:30 a.m. and 5:30 p.m., there's an unsecured exposures of cash investors in the triparty repo markets. and this unsecured exposure can give incentives to run in triparty. so this task force is actually working on solutions to that. and this is one of the factors often, you know, that has often been blamed to have contributed to some of the instabilities in the repo market. >> it strikes me as when the leftover pieces of business that we still haven't grappled with

with a consequent of the crisis. >> i think they need to grapple with that. >> thanks very much, device. i would like to call on robert plaze on the far left. obviously so should treasure of the division of investment management and he has allowed these issues right now, especially money market fund. bob, i'd like to draw you out on where you are on that, but of the applications for the stability of which are working on, perhaps other parts i'd hedge funds and etf's that might relate as well. >> thank you, greg. thank you very much. before i start i also have to say that my thoughts this afternoon are my own and don't necessarily reflect those of the commission, commission or my colleagues. >> you guys are no fun. you're trying to make sure you don't get any news out of this. >> before i let this play my wife on me today they don't reflect her views either. one of the most significant events didn't involve hedge funds, the maximum risk takers

in the asset management space that we regulate at the commission. rather, the state money market funds. they simply pull commercial paper. what possibly could go wrong there? rhetorical question, please. september 2008 run on market -- money market funds, agenda and ended only after by intervention by the treasury and the federal reserve board, massive intervention, unprecedented nature. both the fed and treasury ended up making money on the deal, and so taxpayer came off rather well but these interventions i think raised troubling questions about a moral hazard. i think everyone knows the money market fund industry will never be the same again, northerly regulators look at money market funds will be the same. but interestingly, shortly after these events occurred, two narratives emerged as to what happened and why it happened.

they are fascinated and they're important to understand because as you look edgier and as the commission weighs options to address money market funds, the theories underlying what happened in merge in different ways. verse analogize the events of september 2008 to a bank run. which could not have occurred at money market funds were subject to bank regulation including deposit insurance and access to the federal reserve board's discount window. in some articles money market funds are not potentially regulate. that are very heavily and detail regulated by the sec in ways it could only be compared to prudential regulation. but the second narrative suggests that weaknesses in the financial sector during 2007-2008 period contribute to a uncertainty about the billy of issues in the short-term market to make good on the obligation. investors in money market funds particularly in a growing number of institutional investors a money market fund simply look to the portfolios to the issues

that were issuing paper and lost complete confidence. beginning of course with lehman brothers when it collapsed but thereafter aig and a number of other major players, commercial paper issuers, who appeared to be employed at the time. and lost confidence of the short term market. this narrative suggests that if there were not money market funds, if folks have been holding the commercial paper or the obligation of the underlying issuers a would've ceased rolling it over and you would've had the same crisis. the first narrative, best articulate i think by paul volcker in the broadest form whole to money market funds as the culprit, part of the shadow banking system. that's where that term is used. the other narrative, i think articulate by paul stevens, president of the ici compelled to money market funds as victims, and to powerfully destabilizing forces in the financial market beginning with the subprime crisis and moving on to lehman brothers.

and again which narrative you hold, and there's some truth to both, depends on where your outcome is, if your narrative of the first, then your first as paul volcker's volcker's was let's turn these things into bank obligations, they should be issued by banks, that, of course, involves extraordinary expansion of the federal safety net, deposit protection system to cover practically $3 trillion of assets in money market funds, and that would be a substantial change from the we money market funds are currently managed. the second, if this every other quiddity crisis created by and a number in the short term market that occurs once every generation or so, suggest the issue is liquidity. and we need a way to inject liquidity into the market that would provide liquidity to money market fund. the ici's suggestion was to form a liquidity bank that is a bank, special-purpose bank that would exist in order to fund the

quiddity for money market funds in times of stress only. banks would operate and only if the courts have access to the federal reserve window, which raises questions whether that window should be available other than banks to fund during times of crisis. a significant part of the cash market to money market funds are to be part of the money supply. they have been for a number of years. so again, depending upon what your theory, what happens is, very different outcomes. they both contain truths. but from our perspective and a policymakers perspective, it's very interesting to have these two narratives and their are helpful to understand different points of view. but regulators, let me go back to my average of disclaimer that i'm speaking for myself. we are on a road you. we have a we have a $3 trillion money market fund industry. and it's starting over. that's something that seems -- it is optional at this time. if i could tell you we

understood at the sec today potential systemic implications of money market funds, we would've done things different in 1970 when the rulemaking came into play, a lot of money market funds exist as to do today. that is, with a stable nav, that can be with banks, savings deposits and cds. for the consumers dollars. we would have done things different. but back then it was simply a pool of cds, pool of commercial paper. and it was a sideline, very small part of the market to which the dealers, much larger commercial paper market provided ready liquidity. very simple. and the commercial paper issuers, banks, always paid in full on time. certainly the money market fund industry today is such a large part of our cash money market, it's very different than it was then, but decisions were made in. turning back the clock as someone suggested, fighting battles bought -- thought in

1970s, doesn't seem like an option, doesn't seem like a path, a wide path. first of all, we have $3 trillion industry, provides a significant funding to get that funding was cut off you would see certainly dislocation. secondly, we have a large investor community that depends upon money market funds today. retail as well as institutional investors. the question is why our money market funds exist today? we know why they existed in 1970, a way to avoid imitations of ridicule on interest rates that the banks could pay on posits that deposits a that certainly is not the case. in fact, i think it was -- money market funds fourth banquet is to prevent banks to pay some interest on the use of the deposits. money market funds are paying just a few basis points, yet large institutional holdings,

$1.8 trillion of institutional holdings would explain that. the institutional market is in money market funds to diversify risk, moving to the bank is not an alternative for most of the investor because the concentration in risk in certain banks which in some cases they've maximize in terms of their balance sheet. they seek at least an institution area for a diversification. in the retail area there's the convenience of money market funds which is combined with a number of large number of investment products such as cash management accounts, variable insurance products, and other things that people use that allow people, the result of people keeping money in money market funds even if they're just paying a basis point. but money market funds are susceptible to run, that's the problem. when shareholders receive a risk that the fund will suffer loss, each shareholder has an incentive to redeem shares before the others. because everybody is getting out at 1 dollar, the first movers do not pay the costs of their liquidity.

instead, it's socialized and the last folks out losses in the fun are concentrated to the last movers. people are at least aware of the situation. strategic pretensions by knowledgeable shareholders can be depended by others. in october 2010 the presence working report articulated and identified and explained this panic that ensued in 2008. the commission in 2009 proposed rules, which even before doctor and statute, then was put onto paper on the dodd-frank statute we have proposed rules to make funds much more resilient. to give you some examples, enlargement of the money market funds are required to maintain 10% overnight liquidity, 30%, 70 liquid. this liquidity and securities does not depend secondary markets which is assigned 2008 froze, but that's contractually

the treasury obligations or securities maturing overnight, or within seven days. that has added a huge amount of liquidity. second, sports directors of funds are able to, something that the directors of the reserve fund didn't have the authority to do before they break a dollar. this is important, this of course damaged the shareholders of the fund but it prevents, we saw 2008 from a money market fund that is having problems are dumping portfolio securities into the market which begins the panic and affects the prices of all the other money market funds. our pricing securities act. but we still have basically the same structure of money market funds and the same problems that can lead to a run, even though we are more resilient today. the commission identified that concern, and i knew that the rules were not going to address all of those issues. there was going to be a phase

two of rulemaking which we would rethink the structures of money market funds. that was followed by a presence working group report which laid out the dynamics i've discussed about. and just last month a roundtable here in washington which many of the players, stickles got to talk about money market funds, what are the options? one option continues to be requiring money market funds to flow the nav. there's a essential assumption that if the net asset by of money market funds floats, investors will behave differently, we'll treat them instead of cash items in which they can expect like bank accounts to get their money back, dollar for dollar, that they would develop a treatment of those more likely to short-term bond funds essentially than they are risky. but what if they don't change their behavior? what if the behavior stays the same and, in fact, interest rates are raised? there are other options and perhaps we can say that for the question time, but there's a range of option to consider right now by the commission.

in the months to come you will see further out of the commission detailing what approaches we're going to take. >> thanks very much. i would like to turn to viral down who needs almost no introduction. he helped organize the event. nude universe has to terrific books that deal with the topics were talking about right now. and you're going to address some of the other issues on shadow banking that we have got into yet, derivatives, insurance and gses. >> thanks greg. thank you for being here. i have a bit of a long tool to take across the remaining parts of shadow banking and it's getting larger as we talk, or as we keep talking. so i wanted to just have a few high level talks and then give my main punchline concern. a part of shadow banking, i think of some of it as perhaps good, useful financial

innovation. but whenever i think of the word of shadow banking, i used to thinking about it is not supposed to be banking but isn't treated like banking but i think it's probably in some ways a useful definition because it makes you look into areas where there might be gaps in the regulation of these entities. i think thomas cooley touched upon one thing in his remarks earlier today, that unless and until we regulate leverage for an asset at the level of the asset or an instrument, it's going to be very hard to get a good grip on the regulation of the shadow banking. they're sort of this unstated theorem of financial market that risk will travel from balance sheet to balance sheet until it is down at the balance sheet that has the lowest capital requirement to hold that risk. you see cds and transactions taking place because it makes sense for everyone all along the

chain to do that transaction, because that way a leverage of the financial sector is maximized in the process. if it is the end part of that pipeline that is actually keeping the lowest capital, they're willing to share some of the benefits of that leverage with the party that has the risk and sell. however, there are several important forms that this risk transfer takes place and that's what i wanted to highlight first. which is that i think this argument that if we regulate the capital stronger in some parts of the banking sector, the risks and activities will leave that part of the banking sector. i think this is not entirely true. in the following sense, which is that sometimes when the transactions take place to exploit leverage, the risk transfer is complete. you can think about something and which is the gses, which are actually taking on the

credit risk and securitize production to in this case, contractually those are holding the mortgage-backed securities, said banks are hedge funds, they actually don't bear the credit risk in the underlying security. but then there are other parts were the risk transfer is not completed. it's partial. that's because it is structured in the form of guarantees. so for example, tobias mentioned up asset-backed commercial paper conduits which had lines of credit from the parent commercial banks. so now i'm the one hand we have transferred the assets out, but to the lines of credit the risk is going to travel back to the commercial banks that provided the lines of credit. you can think about private mortgage-backed insurance. again, the risk transfer is not simply because the monoline defaults on the credit insurance, the risk is going to stay with the holder of the original securities. what this creates is you don't

necessarily get a shadow banking system that completely is joined from your existing banking system. it's actually interconnected, intertwined and very complex ways, depending on whether the full risk transfer was the official way of exploiting leverage or whether a partial risk transfer was actually the efficient way of transferring leverage. and, therefore, it suggests that the regulation of shadow banking is important, not just to contain the risk in certain parts of the system that are outside of the regular banking system. it's important even to control the risk of the regulated banking system itself. because if the counterparty risk in a partial risk transfer is not managed that welcome the risk will come back as it did for example, in case of citigroup which i provided huge lines of credit to conduits and the liquidity insurance kicked in and came back to balance

sheet of citigroup. now, coming back to dodd-frank and how it touches upon, therefore i want to think about the shadow banking in some sense risk repositories, which is depending upon how fragmented the regulation is for a particular asset class, certain risk repository gets created out there. so in case of the money market funds that paul just spoke about, i think about it as a systemic risk of the financial center. that whatever risk remains in financial sector paper after you have diversified it, the repository for that risk are the money market funds because they are essentially diversified holders of these papers. gses you could call them fannie and freddie, have basically broadly speaking, credit mortgage, credit risk repositories of the economy. you could think about the new centralized clearing houses that are going to come about as the

counterparty risk repositories of the system. and you could probably think about insurance, model lines, et cetera asked out that these other people are not willing to do. they will try to look out for some extra padding in the process. so, coming now, how does, how should we think about dodd-frank and all these risk repositories which are out there in the financial system? the focus of my comment is going to be mainly on orderly liquidation authority, which is what is not clear to me is whether in the next systemic crisis that we might witness, the problem is only going to be the too big to fail institutions which is really the primary focus of the orderly liquidation authority under dodd-frank. i wonder if outside of dodd-frank, or with in it, as i

think about regulators, academics, practitioners, should actually be thinking about devising ways in which we could deal with resolution of a money market fund run. we could deal with resolution of failure of clearinghouse. we could deal with failures of insurance firms and model lines. and perhaps maybe the biggest sort of elephant in the room, whether we could find some binding down fannie mae and freddie mac at some point of time. and when you look at the various options that are out there, you see that dodd-frank doesn't sort of pushing the envelope as far as one would have ideally liked your so. so let me just walk to these and summarize my assessment of liquidation or resolution, or possibly that might exist of

these various risk repositories. i've often, let's call it wishful thinking, that maybe if the european crisis took hold but didn't become so bad that it would affect the interbank market, if the banking sector directly, then maybe it was just have a natural death of the money market fund industry. would have in mind was the risk crisis enough that the risk of who is breaking the buck on the money market funds, but you think that the well capital banks out there, let's go and put our money back into deposits with our traditional banks. i think that a good reason why this might happen. we're in a very low interest-rate environment. i think if i'm right is already a bit of a flow out of money market funds back into the banking sector. and i'm sure that has picked up to speed in the last two weeks. the greek problems have

surfaced. that there are other reasons. we don't have reg q anymore on the traditional deposits. i think dodd-frank act also removes the restriction on banks to bank deposits on corporate deposits, paying interest rate on corporate deposits. and so it seems that other than sort of the capital regulation which is not yet been extended to money market funds, many other things are harmonized. so if risk rises for money market funds in tremendous order, i think it might actually reveal a systemic risk that they are taking on. but if that doesn't happen i don't know if we have a solution right now to deal with the resolution of the next money market fund run. my counterfactual is that most likely we may have to just come out with first we might try some suspension of attention, but if that scales up the problem beyond a certain size we might have used the lender of last

resort. they would have to begin -- have to again be a blanket because the fed under dodd-frank support any one individual money market fund. going back to derivatives, i think as michael barr and some others suggested, there's a lot of good in the derivatives regulation of the dodd-frank act, much more than what one might have expected. the primary concern here is that, of course, we're putting all our eggs in one basket into this clearing houses. and now the risk management standards of these clearinghouses will be very important. so why is the clearinghouse -- a clearinghouse is only going to fail when one or more of its dealer members fail. it's large enough that its current capital gets exhausted, which he would have been the

initial capital, et cetera. and it wants to go and make capital to other dealer banks, or broker-dealers. but there any difficult situation. so inherently, derivatives clearinghouse most likely even failed, only during a full-blown systemic crisis. what will we do at that point? those likely we will treated as a utility that way we can use the 13-3 exception of dodd-frank to provide emergency liquidity assistance. but also suggest to ensure that therefore they don't game is federal reserve book, dramatically the risk management will be quite important. what kind of standards and initial capital standards as i said for the clearing members. there is the internet -- the issue of the international

cooperation -- competition. clearinghouses are not under basel regulation, in spite of all its weaknesses. elyse i would have liked them to begin their but they're not even in there. if anything, basel has a capital advantage with clearinghouses. which is going to be under the forster which is of course the expectation that you want to force things to happen on clearinghouse but then you better actually regulate these clearinghouses pick so i think is quite an important need for central banks internationally to come together and devised some minimum risk management standards. if i could touch upon one thing. one of the big problems in the derivatives space was just lack of information. when bear stearns failed and the aig failed i don't think markets had a transparency as to how these risks were going to travel in the system. we knew aig was large. we knew there wasn't for all

practical purposes. but markets did have a real knowing he was exposed, how much, to these risks. i suspect that the transfer -- transparency issue has not changed much. is to borrow a large did was to get into trouble, i'm not convinced that the markets or who is exposed to whom, who should be primarily be concerned about, or whether the a generalized uncertainty about the situation and a panic, so perhaps even while the ofr is getting in shape we might want to push on the transfer -- transparency. the last thing i want to touch upon is fannie mae and freddie mac. dodd-frank had one sentence on gses. that the treasury should come out with a proposal by february of 2011. as potentially the most systemic institutions of the country of

what would about a bigger role for them in there. and the treasury has a plan, but it has three plants. either primary a private solution with an affordable housing program, a private solution in good times but in equal amount of gst tax that kicks in during a crisis to support new lending, and three, a gse, might not an every but a new gse that takes on the risk of although i don't know what they would call it, maybe humpty dumpty or something like that. but the most important thing is they don't have a plan. and the political forces seem to suggest most likely this would be in march of 2013. i see this as a big problem for two reasons.

one, the gses are currently securitizing, helping securitize over 90% of the mortgage risk, new mortgages that are originated. fair share from under 5% in early 19 -- has climbed out in stock, to over 50%. if we don't get private sector in this market anytime soon, most likely the united states government will gradually own the entire mortgage credit risk of the country. i think it's a scary thought in a time when the gse is basically not a balance sheet of deny states government. $175 billion has already been spent in the form of taxpayer losses. there's a sense in which it could be a much bigger role than what it stands right now. so i think there are quite important resolution issues, she some short-term from how will we deal with money market fund

runs, maybe that's an immediate risk. how will we deal with ccp under capitalization, maybe that's a five year risk potentially in expected turns, five or 10 years. and then there's this huge 10 year unwinding program we need to put in place. i think none of these things are currently taking shape, so we need to think harder about these. >> thanks a lot, via. a great survey of issue. i'd like to go to questions now. we have about 10 minutes left i think. does anybody have any questions? start with you back there. >> just too tied up a loose end, as the way peter faulk would have said, it seems like if anyone should have known, given that the authorities claim that no one could have known about aig, there are two authorities that clearly were in a position

to get the information and do something. and those would be a, the treasury and b., the new york state insurance commission if that was not a joke, or maybe the treasury was the joke. what is your view of which of those is really deserving of the blame? because new york and a lot of respects is charged with knowing, with being the serious supervisor when it chooses to be. because it is the financial capital, and then it tells washington what it needs when it needs a place to lay off the results. so how do you see that? >> conveniently need of those groups are represented on this panel. why don't i start with you.

>> i, to the best of my knowledge, there was a jurisdictional arbitrage your, one were aig bought a small savings and loans and there are regular but office of supervision. i think the new york insurance superintendent wanted to regulate them, but this arbitrage was possible. and there was a lot of stuff that aig did to its london office, because london had a very light agreement for creditor windows during that period, mainly to boost its financial sector. and that is exactly the international concerned i'm concerned with on clearinghouse firm which is whether rather than getting relatively high standard of regulation -- regular and capital of clearinghouses, and you get a race to the bottom because everyone wants to attract the order of flow to happen in their jurisdiction. [inaudible] >> was probably part of that. treasury is the one institution

that could have dealt with the british authorities on an even basis. >> the transfer issue i was referring to, i sort of had in mind more of a market transfer issue which is, so let me give an example. jpmorgan in its disclosures reports how much collateral it would have been forced on its debtors positions, up to six nodule downgrades. through the first quarter of 2006. goldman sachs are doing this since the last quarter of 2007. aig, until august of 2008, had only stated its collateral, likely collateral for one notch downgrade. no one in the system actually knew what would be the collateral cause that aig would have to meet if there were a multi-notch downgrade. they were too and have billion dollars dollars of cash. they were -- they were fine for

one notch. when it went from one notch to a multi-notch downgrade, the collateral follows ashlee $20 billion. this is the kind of things i was referring to where we could no more even in a market transfer and see standpoint about these entities that we don't know. [inaudible] >> i believe in 2002 pnc and aig were called offsides on and off balance sheet transaction, and pnc got an m.o.u. from i believe the fed and/or occ. these are like precursors to the big aig trade. so there were ways to figure it out but was but who, with significant? so because of how much country

and you are or just going to go along with the joke, so i think besides the market there were authorities that new things are going on but they didn't choose to act. >> yes? >> i just want to ask a question, maybe make a statement about the money market fund area, and your two views of the world. there was some research done by two stern professors, and it's a broad work but they have some startling figures on reserve prime fund. and if you look at sort of when they loaded up on risk, they went from about 17 or 18 billion

in assets to about 60 billion. and if you look at what the spreads were, eight or nine basis point and they were offering 40 basis points off. and you look at the assets they should to do, really from august '07 until after the crisis started to august '08, just in a year period, they just load up on asset-backed commercial paper and some risky financial paper. so it's pretty woeful what they were doing. and if you think currently about what's going on with european banks, and i recognize that there are safe european banks but they are in it because the spread is hi. so it just seems this, you know, is searching for yield is a problem. and it's a problem in the commercial banking sector. then you can debate about deposit insurance or premiums on deposit insurance, but we don't have that in the money market

fund area. so seems very hard to fix that problem without recognizing this is what goes on. and probably always goes on. >> bob, do you want to tackle that? >> i think the analogy between what the reserve fund was doing, which was assuming greater amounts of risk, there was a fund mill changed into money market fund that occurred. and what's going on right now. money market funds brought -- escort investments. about 50% of assets across the broad spectrum of money market funds better in those banks because the money market funds money managed to lead in those banks. since we've been monitoring it, we will have access to information by the way for the last six months. it's pretty stable. at around 50, 51%. of course if you'd gone back for year or two ago you would've

seen ireland in money market funds, there's not a single fund that has any irish exposure today. what happened is the funds gradually rolled out of ireland because there was an orderly exit of ireland out of their commercial paper market. there has been in other markets. the funds managers feel that in the short run at least it is a very strong investment. also diverse occasion -- diversification. it naturally forces u.s. manages to go abroad. these are global banks. these are not simply think of, it's not a spanish bank. it's a global bank and there are global disclosure but some of which have higher ratings than u.s. bank alternative. at least diminished i talked to said, and i don't think the analogy exactly works, but notwithstanding that the commission is concerned because while there's a good process by which participants of the money

market fund initial orderly it's the disorder process and lehman brothers, we worry about. >> i think we're time for one more. >> just quickly, one subject, this is almost a question for you, greg. this became an economist piece on etf's. and exchange-traded fund on exchange traded notes. and products. basically looking at synthetic side of the market as well as let's call it the cache site. and its growth and its potential resemblance to some of the asset-backed markets that cause us trouble in those -- in '07 and a way. are any of you worried about it? >> well, let me broaden the question, what's the source of the next crisis? dtf or something else? >> etf's you got to distinguish your.

etf is three letters that cover a broad swath of the different types of issues. there are u.s. etf's better regulated under investment copies and they're limited in terms of what they can do. the europeans and etf's, the entire index, exposure is an affiliated advisor. that situation can't happen to the u.s. at least with the security space etf. so we are concerned about those issues, but i don't think the intensity of those issues here are quite what they are in other places. i'm not sure quite how can turn to be at least in our market. >> i guarantee as an economist you should be concerned. [laughter] again, another rhetorical question. >> let me just finish with you. if not etf, what else? what else is there in the shadow banking entity that we have to lie awake at night thinking about? >> i mean, the federal reserve

is monitoring everything. >> nobody there ever sleeps. >> thanks very much. it's been a good panel discussion. [applause]

>> nasa is on schedule for the final mission of the space shuttle program this friday with the launch of sts 135 atlantis. look back at the shuttle program starting with the launch of sts one columbia, 30 years ago. and explore what's ahead for nasa online at the c-span video library. search, watch, clinton shared anytime. >> the supreme court is now available as a standard and enhanced e-book and tells the story of the court to the eyes of the justices themselves. 11 original c-span interviews with current and retired justices. this new edition includes the interview with a new is supreme court justice, alain kagan. c-span, the supreme court, a fable now whatever it the books are sold. >> federal deposit insurance

corporation cheer sheila bair is stepping down this coming friday at the end of her five year term. she spoke last month at the national press club here in washington about her tender and efforts at the but new financial regulations. she criticizes what she calls short-term policies to overturn the new law. her comments are about 50 minutes. [inaudible] [inaudible]

some of the staff were here with me. richard in particular, our chief economist who has also been drafted repeatedly as chief speechwriter. he has done wonderful work and a big hand in his speech today. i want to thank them for this and all the wonderful things you have done in the past. thank you very much. andrew who many of you know. our head of public affairs is out there somewhere who is just again been with me the whole five years and done a fabulous job. and his deputy, michelle. and jesse, my chief of staff who i drafted during my treasury days. and again, has been at my side and has been an incredible experience. and, finally, of course my husband, scott cooper, who has just been supportive of everything. including a lot of home obligations when i was not there

as much as i wanted to be. and also i might say helping with speechwriting a more than one occasion. i fed him review, he's a wonderful editor as we'll. i'm honored in thanking you for inviting me to be at the national press club to deliver my last speech as fdic chairman. as i prepared to close out my term i cannot help some of the challenges we face over the past five years. some of the lessons we learn in the process. our nation has suffered its most serious financial crisis in economic downturn since the great depression. the after effects will be felt for many years to come. there are many causes of this crisis. but in my opinion the overarching lessons of the crisis is the pervasive short-term thinking that helped to bring it about. short-term -ism is a serious and growing problem in both business and government. i would like to devote my remarks to explain what i mean by this in discussing i think it plays into the policy challenges arising from the crisis.

what is and why does it arise? short-term -ism refers to the lg tennessee which we all share to one degree or another, to unduly discount outcomes that are far and into the future. myopic decision-making is a familiar concept. the emerging field of behavioral economics delves further into patterns of inconsistency and economic decision-making. investors, systematically overvalue short-term payoffs and passive investment opportunities that could lead to much better off in the longer-term. too much of short-term thinking can be very costly. it is a market fair that leads to underinvestment, in viable projects with long payoff periods. part of our tendency towards short-term is appears to be biological. of the mathematical side of our brain makes careful calculations of risk and reward over time, the more primal, emotional parts of our brain tend to focus on the here and now. which part of the brain to think

becomes active when research subjects are presented with real-life decisions involving risk and reward. you guessed it. it's the more primitive system which understands greed and fear, but is less so on long-term consequences. short-termism also grows out of the institutional rules that govern our behavior. when executive compensation varies according to current year earnings or stock prices, it creates incentives to maximize short-term results, even at the expense of longer-term considerations. and short-term incidents can feed on each other through the chain of accountability. if an investment fund turns fees based on volume and volume varies as it often does with current performance, then the path of least resistance is to compensate fund managers based on current results. but ask yourself if this investment fund is part of your 401(k), would you prefer that your fund manager be commented at least in part based on

long-term performance? i probably don't need to take a short term is also hold sway in the realm of politics. the verge of our electoral process is that the income is based market discipline at regular intervals. but the drawback is that those facing reelections have little incentive to take a longer view of the issues and their constituents do. if the voting public doesn't regard to runaway federal debt as their highest concern, then elected leaders probably will not be the. it's a particular challenge under a system to find leaders who will commit to projects that will pay off long after they've left office. americans are naturally cautious when it comes to the ability of government to direct capital to long-term investments with uncertain outcomes. and yet we can easily think of many examples where farsighted government investments have yielded large returns for generations to come. think of this set aside a plan for national parks that permit preserve the dod and grandeur of our national landscape.

government and doesn't have linked our country to the interstate highway system and the internet. as a nation with the investments that have allowed us to defend peace, to explore the moon, eradicate disease and decode the human genome. but while he concludes see the wisdom of those investments in retrospect, there are many areas of our national life both public and private where short-termism appears to be on the rise. the average holding period of trade on the new york stock exchange fell from seven years in 1940, to just seven months by 2007. the average tenure of departing ceos declined by nearly 30% between 1995-2009. not surprisingly, ceo turnover was found to be highest among companies whose stock price performance lagged their industry. one powerful force behind the rise in short-termism is also technology. we basically have more latitude to express our in the short-term preferences than we once did.

for example, a well-developed consumer debt market provides more options for households to act on their inclination to bar her from the future to meet short-term needs. as we know credit cards can be either extremely useful are highly destructive tools, depending on how they are used. well-developed capital markets have expanded the opportunities for financial companies from transaction fees and trading activities, as opposed to the patient work of lending and long-term investing. the term haitian capital seems quaint and high-frequency trading. finally, a lesser been too busy update your facebook status, you have probably already inferred that short-termism is also driven by information factors. in the 24 hour news cycle or consulate bombarded with information that compels action, not patients. given the built-in pressures faced by corporate executives and investment managers, the constant flow of information only heightens their obsession

with short-term performance at the expense of longer-term goals. at this point you may be asking what all this has to do with a financial crisis, and the answer is plenty. as has been the case with most previous crises, the central cause of this crisis was excessive debt and leverage across our financial system. in the decade leading up to 2006 when u.s. home prices reached their peak, total u.s. mortgage debt increased by 180%, and averages home prices rose by almost 190%. rising home prices prompted mortgage lenders to focus on temporarily inflated collateral values, while they relaxed underwriting standards that tradition ensure that the borrower could repay the loan over time. most of the subprime loans made at the height of the boat and posted upward adjustment in the interest rate and monthly payment after two or three years, frequently making the loans unaffordable. as long as home prices kept rising, these bars could usually